Saudi opens the gateway to growth

Earlier this year, airport operator TAV Airports sailed through a selection process to sign an agreement with the Civil Aviation Authority of Saudi Arabia (GACA) regarding the expansion and operation of the three airports.
TAV and its partner, Al Rajhi Group, will be operating Yanbu, Qassim (widely known in the air-travel industry as ‘Gassim’) and Hail airports for 30 years.
The move represents a significant milestone for the Turkish airport operator as it increased the number of airports it operates worldwide to 17 – having started its first operation 17 years ago at Istanbul Atatürk Airport.
The three Saudi airports will see an investment of some $400 million for the development of new terminals and service units.
TAV Airports chief executive, Sani Sener, said that following the signing of the concession agreement for the three airports on June 8 2017, the next step would be the start of construction of the new terminal buildings. “The construction period is expected to be two or two-and-a-half years.”
Providing service to approximately 3.6 million passengers in 2016, Yanbu, Qassim and Hail airports will be able to raise this to approximately 11.5 million passengers per year with the new investment.
TAV expects to take over the operation of these three airports within this current year. “TAV’s success in the Madinah Airport project, which was the first airport privatisation in Saudi Arabia, opened new doors in this country,” said Sener.
There are some high-growth global markets that capture the attention on a regular basis – China, India and Indonesia have all seen rapid growth in the last five years. However, Saudi Arabia has quietly grown as fast as any of these markets. According to data from air travel intelligence company OAG, since 2012, capacity from the country has increased by 63% to nearly 650 million outbound seats per year, with a solid 9% growth expected in 2017.
Such growth may explain why overseas airport operators are increasingly interested in Saudi airports as potential acquisitions.
Sener said Hail Airport is mostly domestic passengers, whereas Qassim is mostly international. “There are no transit passengers in both airports. Qassim holds numerous important events throughout the year and has various international hotel chains. As a result, both business and leisure passengers are using the airport.”
A closer analysis by OAG reveals that Qassim, the larger of the two airports, will operate 1.2 million scheduled outbound seats this year spread across 23 city pairs, of which 15 are to international destinations with connectivity to the major hub markets in the region, such as Istanbul, Dubai and Doha, firmly established.
“Indeed, international capacity at Qassim is now one-third larger than domestic capacity and has seen a near five-fold increase over the last five years as carriers such as Flydubai, Al Masria Universal Airlines and Turkish Airlines have launched scheduled services,” said John Grant, senior analyst at OAG.
Grant said low-cost airline capacity now accounted for more than 26% of all capacity at the airport, with Flydubai the largest low-cost operator, followed closely by Flynas.
Located in the centre of the Arabian Peninsula, Qassim is one of the 13 administrative regions of Saudi Arabia. Its airport is the gateway to the region, where the majority of the country’s agricultural production takes place and the area is a significant tourism destination.
By contrast, with slightly fewer than 750,000 scheduled seats in 2017, and with only seven airlines serving the market, as opposed to the 14 operating from Qassim, Hail is clearly the smaller of the two airports.
Grant said international connectivity is currently limited to Dubai, Abu-Dhabi and Cairo, with 32% of all capacity at the airport provided by low-cost airlines. “However, for both assets, the key question is more around the future opportunity and mix of traffic rather than the impressive growth of the last few years.”
Grant feels that with the domestic market already well served, the expansion of international services will be a key part of the future outlook. Analysis of OAG’s traffic data suggest that there are a range of unserved markets from both airports, although many are long-haul in nature, such as Manila and Jakarta.
Closer regional markets do, perhaps, offer opportunity: “Neither airport has any scheduled service to the Indian sub-continent and Lahore, Islamabad, Delhi and Karachi are among those unserved markets where, perhaps, low frequency low-cost airline services could be operated in the coming years subject to the necessary bilateral approvals being in place.”
For Qassim and Hail, the recent increases in capacity have been significant, perhaps to a point where further potential increases in capacity in the short-term may be less than seen in recent years. “Certainly Flydubai, Turkish Airlines and Nile Air have all made slight reductions to their 2017 scheduled capacity compared to 2016, perhaps suggesting that demand is not growing quite as quickly as supply has in recent years,” Grant suggested.
The emerging economy of the Middle East will see the strongest international passenger growth, with operators recognising the value of connectivity to drive global trade and development.
Around 80% of the world’s population lives within an eight-hour flight of the Gulf, meaning that by routing through the Middle East, carriers can aggregate traffic and offer a one-stop service between many city pairs that would not otherwise offer such direct itineraries.
“Longer term, and over the course of a 30-year concession, the outlook for growth from the secondary airports in Saudi Arabia is certainly positive. If much of that growth is built around international services that typically generate higher revenues per passenger, then TAV and its partner will be delighted with their investment,” said Grant.
Sener emphasised that the operational strategy has always been customer-centric. He said one of the most important parts of a development project was the operational readiness and transfer (ORAT) process.
“The aim is to start the operations effectively and in a timely manner at the end of the construction. We’ve followed this process with our experienced ORAT team in Madinah Airport and will do the same for Yanbu, Qassim and Hail airports, together with our local partner, Al Rajhi Group.”
TAV has been operating Madinah Airport in Saudi Arabia since 2012. The company also has operations at Jeddah, Riyadh and Dammam airports.
“In the upcoming periods, we will continue to evaluate new opportunities all around the world, particularly in developing countries,” Sener said.